Off the rails

Railways must change its business model to survive

It is just as well that Railway Minister Suresh Prabhu has spared himself the task of presenting a Railway Budget for the coming financial year. This is because, going by present reckoning, he would have had to use the occasion to explain non-performance instead of taking credit. The mid-year situation of the railways is not just bleak but looks like being unprecedentedly so in recent times. During April-September, loading of freight actually went down, not to speak of missing the target, compared to the same period of last year. The picture is equally bleak on the passenger front. While the number of passengers carried has been stagnant in recent years, there has been a modest rise in passenger revenue. This year, during the first half, even revenue went down. As a result of all this, according to one report, in the first half of the current financial year, total earnings are short of the target by Rs 12,400 crore and less than last year’s level by Rs 3,200 crore. Consequently, the operating ratio (expenditure to earnings) has gone beyond hundred to reach 114 per cent when the Budget Estimates for the current year projected 92 per cent. 

The Indian Railways is rapidly redoing its sums and is now projecting a shortfall of Rs 18,000 crore – a slippage of Rs 15,000 crore in earnings and excess expenditure of Rs 3,000 crore – for the whole year. To make up a little, it is planning to end the year with a freight loading of 1,120 million tonnes, which would be marginally up on last year’s figure of 1,107 million tonnes but way off the target of 1,157 million tonnes. This is based on the revival in freight loading in October, largely on account of iron ore exports. But eventually, even this may not be achieved. There is virtually no leeway on the expenditure side as major items such as pay and pensions cannot be touched. 

Why is this happening when the gross domestic product is projected to grow at a world-beating rate of close to eight per cent? One answer is that the engine of growth is services, whereas the railways caters mostly to the brick-and-mortar economy and that too in bulk carriage. According to one assessment, bulk cargo accounts for only 30 per cent of the economy’s total transportation effort. The railways has a 60-70 per cent share of this but they are nowhere in the non-bulk transportation business. What is more, road transport, not railways, is cornering most of the incremental bulk cargo business. To make things worse for the railways, the government is putting in considerable effort to promote waterways, which will pose a low-cost challenge to the railways in the carriage of bulk cargo. 

The railways must urgently concentrate on changing their business model, which is geared to handling bulk cargo such as coal, grain and iron ore, and deal with complete rakes instead of individual wagons. Marshalling yards, in which freight trains are put together wagon by wagon, must become important again. What is more, consignees have to be assured of a time of delivery. Mr Prabhu, in his festival season greetings, says time-tabled freight services have been introduced. This has to be mainstreamed.